After $6 Billion Buying Binge, Middle East Investors Shun U.S. Commercial Real Estate

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Two years after buying almost $6 billion in U.S. commercial real estate--more than Europe, Asia and the Americas combined--Middle East investors have almost disappeared from the American market.

In 2009, Middle East buyers accounted for only $100 million in deals, according to data tracked by Real Capital Analytics, a U.S. firm. So far in 2010, the Middle East isn't even on the top 10 list of foreign investors, the company reports.

The drop off is in sharp contrast to interest from investors around the globe, who are buying U.S. commercial property with renewed vigor, Real Capital says. After investing $1.5 billion in the first quarter, foreign interests bought up $2.5 billion in commercial property in the second quarter, accounting for about 10 percent of deals. The number was closer to 20 percent in core markets like Manhattan, Los Angeles, Boston and San Francisco, Real Capital Analytics found.

Although nowhere near the glory days of 2007, when international investors sunk $19.4 billion into the U.S., purchases were more than 200 percent ahead of the first half of 2009, Real Capital says. Sixty-one percent of the deals involved office space, still the favored target of foreign buyers, who are taking advantage of prices "near cyclical lows."

Canada and Mexico investors are the most active, representing about half the deals. China is also becoming more of a player, led by the recent $62.6 million foreclosure purchase of the Los Angeles Marriott, a "rare direct acquisition by a Chinese investor," the report notes.

But Middle East investors are almost completely absent, not even cracking the list of 35 biggest sales.

Instead of trophy properties, Middle East are focusing on less risky fund investments, until lending markets open up again, analysts say. Many of the top groups in the Middle East are still roiling from the problems in Dubai.

However, there are signs Middle East investors are ready to get back into the game. A group from Abu Dhabi was recently in Washington researching "core trophy assets," Stephen Collins, a managing director at Jones Lang LaSalle, told the National.

As more A-list properties come on the market, Middle East investors will be players again, analysts predict.

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